Roland and Marie Womack - Page 12

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          Appeals relied on the substitute for ordinary income doctrine,              
          the same doctrine as had been invoked by the Courts of Appeals              
          for the Ninth and Third Circuits.  See Watkins v. Commissioner,             
          447 F.3d 1269 (10th Cir. 2006), affg. T.C. Memo. 2004-244; Wolman           
          v. Commissioner, 180 Fed. Appx. 830 (10th Cir. 2006), affg. T.C.            
          Memo. 2004-262.                                                             
               With that background, we proceed to evaluate each of                   
          petitioners’ arguments.  Although petitioners’ arguments fall               
          into four general categories, we need address only three of them.           
          Their argument that lottery rights are “accounts receivable”                
          under the Florida law so as to be property rights and included in           
          the section 1221 definition of a capital asset need not be                  
          addressed.  That argument is part of petitioners’ attempt to                
          include the rights they sold within the definition of “capital              
          asset”.  Petitioners go to great lengths to build a syllogism by            
          means of premises that State law defines lottery rights as                  
          property and/or that such rights are assignable.  Assuming                  
          arguendo that petitioners are correct, the application of the               
          doctrine obviates the need to address that question.  Although              
          State law may define the nature or ownership of property, Federal           
          law addresses the incidence of Federal tax.  See Aquilino v.                
          United States, 363 U.S. 509 (1960); United States v. Bess, 357              
          U.S. 51 (1958).  The substitute for ordinary income doctrine                
          caselaw, applying a substance over form approach, is                        

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